Equitable Estoppel Test Not Satisfied by Mortgage Insurer

Equitable Estoppel Test Not Satisfied by Mortgage Insurer

Article excerpt

CONSUMER

The 4th Circuit held that a non-signatory defendant could not require plaintiffs to arbitrate federal statutory claims involving premiums on mortgage insurance because (1) such claims were independent and unrelated to the underlying mortgage agreement containing the arbitration clause and (2) the plaintiffs did not allege collusion between the defendant and the mortgage lender.

The plaintiffs bought a home in Beaufort, S.C., financing the entire cost with SouthStar Funding. The plaintiffs entered into a separate arbitration agreement with SouthStar, providing that "Any claim, dispute, or controversy (whether in contract, tort, or otherwise) arising from or related to the loan evidenced by the Note shall be resolved, upon the election of either [party] by binding arbitration ... except as provided under [certain exclusions]." The exclusions included statutory and regulatory claims, claims arising out of or based on the relationships resulting from the loan application, the closing or servicing of the loan; or disputes over the applicability or enforceability of the arbitration agreement or the agreement between borrower and broker or borrower and lender. The agreement further provided that it would apply "no matter by whom or against whom a claim is made."

SouthStar required the plaintiffs to obtain private mortgage insurance, which they did from Republic Mortgage. The plaintiffs sued Republic in a purported class action alleging that Republic violated the Fair Credit Reporting Act by increasing their insurance premium based on information in their credit report, without providing them with the adverse action notice required by the FCRA. The plaintiffs alleged that these violations were willful or negligent.

Republic moved to compel arbitration and dismiss or stay the lawsuit. The district court denied Republic's motion, finding that, since it was a non-signatory to the arbitration agreement, it was equitably estopped from enforcing that agreement against the plaintiffs. …